Zambia Raises Key Rate for First Time Since 2015

Zambia’s central bank raised its key interest rate for the first time since November 2015 in a bid to stabilize its currency, which is the world’s fourth-worst performer against the dollar this year.

The Bank of Zambia raised the rate to 10.25% from 9.75%, Governor Denny Kalyalya told reporters Wednesday in Lusaka, the capital.

Key Insights

• While the souther Africa nation’s annual inflation rate of 7.7% in April is within the Central Bank’s target range of 6% to 8%, effects from the Kwacha’s 13% slide against the dollar this year could push it beyond that range. The increase in borrowing costs could help support the currency.

• The inflation rate will probably remain above the target band for the next eight quarters. Kalyalya said.

• Food prices could rise further after Zambia’s harvest of corn, a staple, fell to an estimated 2 million metric tons this year, the lowest in a decade.

• “An upward adjustment will certainly hurt the real economy,” Chibamba Kanyama, a Lusaka based economist, said by email before the decision. “We are, however, better off hurting the economy via high policy rate than waiting for inflationary pressure to frustrate long term investment.”

Information has been summarised from Bloomberg